Which option correctly states the relation between depreciation and net investment?
Answer and explanation
Correct answer: Deducting depreciation converts gross investment into net investment
Gross investment includes both replacement of capital consumed through depreciation and any additional investment that expands the capital stock. Removing the replacement component gives net investment: net investment = gross investment − depreciation. Depreciation is not always equal to net investment, and adding it does not make investment zero. Hence option A states the correct relationship.
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What is the correct answer to this question?
Deducting depreciation converts gross investment into net investment
Why is this the correct answer?
Gross investment includes both replacement of capital consumed through depreciation and any additional investment that expands the capital stock. Removing the replacement component gives net investment: net investment = gross investment − depreciation. Depreciation is not always equal to net investment, and adding it does not make investment zero. Hence option A states the correct relationship.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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